There is light at the end of the tunnel

04 November 2022

While load-shedding is a national crisis, it is the lesser evil when compared to a potential total grid collapse. The Renewable Energy Independent Power Producer Procurement Programme remains a long-term investment opportunity into stable assets with continued bid windows being rolled out. The country has immense potential, with the energy sector reforms moving the country in the right direction.

Amid an uptick in loadshedding, impacted by both planned and unplanned maintenance of Eskom's generation fleet, recent reports indicate that billions of rands in Gross Domestic Product are being lost.

While load-shedding is a national crisis, it is the lesser evil when compared to a potential total grid collapse. The latter would be disastrous from both a financial and social order perspective. Reliable and consistent energy generation is undoubtedly one of the key factors in supporting the further industrialisation of Africa's most advanced economy. This would provide a much-needed boost to economic growth, an increase in job creation and assist in reducing the inequality gap. Sustainable and reliable energy infrastructure is key to maintaining and broadening the appeal of our country through efficient production, lower costs, reduced inequality, and a greater workforce.

 

BRINGING NEW ENERGY TO INVESTMENT OPPORTUNITIES

While the energy challenge cannot be solved overnight, electricity sector reforms announced by South African President Cyril Ramaphosa in July 2022 provide a pathway to address energy challenges and generate investment opportunities, along with net job creation. The lifting of the embedded generation threshold and the opportunity to sell back power into the grid opens up power generating opportunities for municipalities and the private sector. We are seeing investment opportunities particularly with the mining houses being some of the largest energy intensive users. One example of this is the recently announced financial close of a 200MW self-generation renewable energy project by Tronox, a vertically integrated titanium dioxide manufacturer with key mineral sands operations in South Africa. This self-generation project would, per Tronox, see 40% of Tronox’s energy needs in South Africa being met, as well as a reduction in its global Scope 1 and 2 emissions of ca.13% versus their 2019 baseline. This creates opportunities for microinfrastructure investment, increasing the self-generation capacity of various industries to enable growth.

 

PRIVATE SECTOR BENEFITS AND CHALLENGES

Boosting the self-generating capabilities of the private sector provides a number of benefits, namely:

• Enhancing the reliability and stability of power supply to the user to sustain and grow relevant industries.
• Providing greater certainty around the energy cost profile, introducing cost savings as well as improving the sustainability of the business/ sector. Facilitating opportunities for South African construction companies, leading to an increase in contractual and permanent jobs.
• Enhancing opportunities for the development of local communities in and around distributed electricity generation.
• Facilitating a green energy transition that contributes to the meeting of climate goals.

Challenges remain around timing in bringing these own generation capacity projects online as well as environmental permitting and grid connection. The latter will be addressed through the fast tracking of relevant approvals and reduced requirements in areas where the environmental impacts of a project may not be considered high risk.

WHAT INVESTORS NEED TO KNOW

For investors looking to increase their infrastructure investment or enter this sector, the above provides several opportunities in the short to medium term. The Renewable Energy Independent Power Producer Procurement Programme remains a long-term investment opportunity into stable assets with continued bid windows being rolled out.

An important factor to consider, as we have learnt from the developed world's current energy crisis, is that a balanced energy mix remains key. Given high gas prices in Europe, we are seeing countries such as Germany extend decommissioning dates or restart mothballed coalfired power plants to ensure energy security. In addition, Europe itself is facing its own form of load-shedding with plans to reduce electricity consumption during peak hours.

Radical shifts between renewable and non-renewable energy should, therefore, be cautioned against. It's not a case of one or the other, but of creating the aforementioned balanced energy mix to deliver reliable power to support South Africa's economic growth. As we aim to reach the finish line of 2050 for net zero carbon emission targets, 'E' factors (environmental) cannot be considered in isolation. Indeed, the 'S' factors (social) also need focus and weight when considering the energy transition. It is key that a measured and phased approach - one that is appropriate for South Africa's industrial and employment needs - be taken.

 

FINDING THE LIGHT

While you may be reading this piece by the light of your rechargeable battery pack, know that all hope is not lost. The country has immense potential, with the energy sector reforms moving the country in the right direction. Our focus now needs to be on unlocking this potential to deliver growth, both economically and socially. As author Ada Adams reflects: “There is light at the end of every tunnel. Some tunnels just happen to be longer than others.”

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